"It was to create chaos, division and bloodshed, to provoke retaliation by Israel that would lead to Arab and Muslim opinion being inflamed, not against those who started the aggression but against those who responded to it," he said.

However, he said it was still possible to come out of the crisis "with a better long-term prospect for the cause of moderation in the Middle East succeeding".

He added: "But it would be absurd not to face up to the immediate damage to that cause which has been done."

Mr Blair said all would be done to try to halt the hostilities in the conflict.

"But once that has happened we must commit ourselves to a complete renaissance of our strategy to defeat those that threaten us," he said.

'Alliance of moderation'

Mr Blair spoke of how he believed "global extremism" should be tackled.

"To defeat it will need an alliance of moderation that paints a different future in which Muslim, Jew and Christian, Arab and Western, wealthy and developing nations can make progress in peace and harmony.

"We will not win the battle against this global extremism unless we win it at the level of values as much as force, unless we show we are even-handed, fair and just in our application of those values to the world."

He said this "unconventional" war must be won through these values.

"This war can't be won in a conventional way, it can only be won by showing that our values are stronger, better and more just, more fair than the alternatives," he said.

'Values change'

However, he said this required a dramatic change in strategy.

The prime minister told his 2,000-strong audience there was now an "elemental struggle" about values that was set to shape the world's future.

He said it was a part of struggle between what he called reactionary Islam and moderate mainstream Islam.

And in Iraq and Afghanistan he said "the banner was not actually regime change it was values change".

"What we have done therefore in intervening in this way, is probably far more momentous than we appreciated at the time," he said